American researchers had already made enough progress to prove that LLMs were not an incomprehensible trade secret based on years of secret knowledge - investors and tech executives were simply lead to believe otherwise. Well-connected people are probably very mad about this and they may try to lash out like the emotional human beings they are.

It doesn't matter from the US government perspective if all of the tech is replicated by US companies and US user continue to use US AI technology. But if US users start to use Chinese AI tech, then protectionism urges will appear that will likely figure out how to ban its use or subject it to large tariffs (e.g. TikTok, BYD, network equipment, solar panels, etc.)

It matters because their goal was hyping up how advanced and difficult their tech is, propping up their valuations.

DeepSeek proved the emperor had no clothes and wiped out a lot of their valuation when investors saw reaching parity to Chtgpt is not really that difficult.